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Oversight Of Mutual Funds On Capital Markets Subcommittee Agenda

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June 29, 2011

The Capital Markets and Government Sponsored Enterprises Subcommittee gathered on Friday, June 24th for a hearing titled, "Oversight of the Mutual Fund Industry: Ensuring Market Stability and Investor Confidence". Subcommittee Chairman Scott Garrett stated the intent of the hearing was to “to focus …on different efforts and proposals meant to provide more certainty to policymakers about the long-term stability of money market funds.” Garrett noted that the hearing was all the more timely due to “attention in the media this week regarding how the Greek debt crisis may affect money market mutual funds.”

Garrett went on to say, “As safe as money market funds generally have been, unfortunately the proverbial genie was let out of the bottle in 2008 when Treasury stepped in to provide a temporary guaranty program for money market funds, potentially putting the taxpayer at risk. This type of action definitely needs to be avoided in the future, and I think representatives of the industry on the panel before me today would agree with this point of view.”

Mr. René Stulz, Everett D. Reese Chair of Banking and Monetary Economics, The Ohio State University

Among the witnesses, there was broad support for the existence and vitality of the mutual funds market. As explained by Mr. Stulz, “The failure of a player in that industry in performing its role does not create a systemic risk. If one player runs into trouble, another player can take its place. In general, difficulties with one player would not mean that the investors in the funds managed by that player would be at risk for regulated funds because the monies of the investors are segregated. Should a firm that manages mutual funds fail, the funds have boards that can replace the manager. There is no reason for that transition to be problematic.”

Ms. Stam gave another ringing endorsement for the strength of the mutual funds market when she testified, “Today, the fund industry overall has over $13 trillion9 in assets under management, which serves as a testament to the trust that investors continue to have in the mutual fund product. Despite the severe market pull back and a decade of mundane stock returns, the mutual fund industry is the healthiest of all the financial industries.”